In this list
Energy | Natural Gas | Oil

Industry appears ripe for a new consolidation round in next few years: Pioneer CEO

Commodities | Energy | Electric Power | Nuclear | Energy Transition | Emissions | Renewables | Natural Gas | Natural Gas (European) | Oil | Crude Oil | Refined Products | Metals | Non-Ferrous | Steel Raw Materials

Market Movers Europe, Jan 17-21: Ukraine border tensions spike commodity price fears

Energy | Oil | Crude Oil

Platts Crude Oil Marketwire

Energy | Oil | Petrochemicals | Olefins | Polymers | Crude Oil

Asian Refining and Petrochemicals Summit

Energy | Natural Gas | Electric Power | Energy Transition | Coal | Electricity | Hydrogen | Renewables | Emissions

UAE's Masdar, partners mull 1.2 GW of renewables exports to Singapore from Indonesia

Energy | Energy Transition | Oil

Fuel for Thought: Alaska officials hit the road to make the case for oil, gas investment

Industry appears ripe for a new consolidation round in next few years: Pioneer CEO

Highlights

Many E&Ps have 'too much debt': Sheffield

Buyers require both upside, cash flows

Permian breakeven price has been halved

The upstream sector may be ripe for a new round of consolidation within three to five years after a number of large corporate mergers in late 2020 and earlier this year, because many E&P operators remain highly leveraged, a prominent oil company CEO said Dec. 7.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Even though oil prices climbed above $70/b this year from the teens and $20s/b 18 months ago, producers have remained disciplined during the last two years and largely not raised capital budgets.

But while most public companies have stuck largely to maintenance-level spending and low single-digit production growth levels, many others are debt-heavy, Pioneer Natural Resources CEO Scott Sheffield said during a discussion by Permian basin operators on the US shale revolution at the World Petroleum Congress in Houston.

"I think consolidation will continue," he said. "A lot of companies still have too much debt. I think you'll see another round of consolidation in the next three to five years."

In January, Pioneer acquired fellow Permian Basin operator Parsley Energy for about $4.5 billion. Then in April, Pioneer acquired DoublePoint Energy, a Midland Basin or eastern Permian Basin company, for $6.4 billion. The Permian spans West Texas and eastern New Mexico.

Sheffield formed Pioneer from the April 1997 merger of Parker & Parsley Petroleum and Mesa Inc., both legacy companies in the oil and gas industry stretching back decades. At the time Pioneer launched, Sheffield said, his new company had too much debt on its balance sheet.

In contrast, by year-end 2021 Pioneer, which now has a $45 billion market cap, will have essentially no debt.

"If I could go back I'd have essentially no debt," he said. "It gives you options."

Debt-heavy acquisitions less alluring

Moreover, companies with a lot of debt will have difficulty finding an exit, Travis Stice, CEO of Diamondback Energy, said.

"A lot of [upstream operators] have purchased private equity-funded companies in the past," Stice said. "We've done so because we were buying upside, and a lot of times they had no cash flow. That couldn't happen today; [sellers] have to have ... flowing cash."

In March 2020, Diamondback acquired QEP Resources for about $2.2 billion in stock.

While shale oil companies have been nimble and innovative, technology has enabled an especially low breakeven price in the Permian Basin.

Pioneer's breakeven price — the level needed to keep production flat — was $60/b in 2014. Today its breakeven is $30/b not only to keep production flat but also pay its base shareholder dividend, Sheffield said.

One enabling practice that has brought down breakevens has throughout industry been lengthening laterals — a well's horizontal leg — and these have become increasingly long. Just a few years ago, the standard length was about 9,000-10,000 feet.

Lateral lengths have tripled

"Laterals were 5,000 to 6,000 feet seven or eight years ago; now it's 15,000 feet," said Sheffield. Also, Simulfracs — fracturing two wells simultaneously to complete them prior to production — is another enabling technology that has lowered costs and made wells more efficient.

Also, drilling times have sped up. Several years ago it took Stice 24 days to drill wells down to 13,000 feet, and another three to four weeks to complete them, for a total of one or one-and-a-half wells every two months.

"That same vertical section today and drilling out three miles [laterally], we're doing it in less than 10 days," he said. "Previously, a good vertical well could recover 250,000 barrels; today, that would happen in the first six months."

Stice noted drilling and well completion innovations have boosted Permian production to nearly 5 million b/d currently from 750,000 b/d in 2008. Previously, the basin's production had peaked in 1972 at 2.2 million b/d.

Moreover, experimental technologies could boost recovery rates in the basin, Sheffield said.

Pioneer is currently engaged in a secondary recovery pilot program of wet gas injection to increase its Permian recovery rates, which are currently about 6%-8%.

"If it works ... we may recover another 8%-10% out of the rock," he said.